According to persons acquainted with the situation, the government is evaluating a proposal to raise the tax-deductible amount on interest earned from savings accounts to ₹25,000. ET was informed of this. During a meeting last week with important officials from the finance ministry, banks made a suggestion in this regard, they added.
“It is under review, and there could be some relief for banks, which have demanded incentives to shore up deposits,” stated an official from the government.
Nearer the time of the budget announcement, a final decision on the plan will be made.
A simpler income tax system without exemptions was adopted in the 2020 budget, giving taxpayers flexibility to select based on their individual financial situation.
Interest from savings accounts up to Rs 10,000 per year is tax-exempt under Section 80TTA of the Income Tax Act, as under the previous tax system. This cap, which is set at Rs 50,000 for elderly adults 60 years of age and older, covers interest income from fixed deposits under Section 80 TTB.
They were taken away under the new tax system. Nonetheless, taxpayers who get interest on their Post Office savings accounts are eligible to claim exemptions under Section 10(15)(i) up to Rs 7,000 for joint accounts and Rs 3,500 for individual accounts. Banks desire to profit from both tax regimes.
According to the person mentioned above, “both issues—namely, enhancing the old limit and permitting interest income earned from savings accounts in scheduled commercial banks (SCBs) under existing regulations in the new regime—are being deliberated.” Lenders had previously given a presentation on the subject.
Concern over the increasing credit-deposit ratio has led banks to argue in favor of deposit incentives.
The Reserve Bank of India (RBI) observed that households were diversifying their financial savings and allocating a larger portion to non-banks and the capital market in its most recent Financial Stability Report. The increasing credit-deposit (C-D) ratio, which has been rising since September 2021 and peaked at 78.8% in December 2023 before reducing to 76.8% at the end of March, is indicative of the widening difference, according to the research.
RBI Looks to Take Action
The biggest private sector bank in the nation, HDFC Bank, said earlier this week that, in the first quarter of the current fiscal year, deposits into its current account-savings account (CASA) decreased by 5% on a sequential basis to Rs 8.63 lakh billion.